Question

Condensed balance sheet and income statement data for Landwehr Corporation appear below.

LANDWEHR CORPORATION
Balance Sheets
December 31
	2018		2017			2016
Cash	$ 25,000		$ 20,000			$ 18,000
Accounts receivable (net)	50,000		45,000			48,000
Other current assets	90,000		95,000			64,000
Investments	75,000		70,000			45,000
Plant and equipment (net)	400,000		370,000			358,000
Total Assets	$640,000		$600,000			$533,000
Current liabilities	$ 75,000		$ 80,000			$ 70,000
Long-term debt	80,000		85,000			50,000
Common stock, $10 par	340,000		310,000			300,000
Retained earnings	145,000		125,000			113,000
Total Liabilities & Equities	$640,000		$600,000			$533,000
LANDWEHR CORPORATION
Income Statement
For the Years Ended December 31
				2018			2017
Sales revenue				$740,000			$700,000
Less: Sales returns and allowances				40,000			50,000
Net sales				700,000			650,000
Cost of goods sold				420,000			400,000
Gross profit				280,000			250,000
Operating expenses (including income taxes)				235,000			220,000
Net income				$ 45,000			$ 30,000

Additional information:

1. The market price of Landwehr’s common stock was $4.00, $5.00, and $8.00 for 2016, 2017, and 2018, respectively.
2. All dividends were paid in cash.

Instructions

1. Compute the following ratios for 2017 and 2018. (9 marks; 25 minutes)

1. Profit margin.
2. Asset turnover.
3. Earnings per share. (Weighted-average common shares in 2018 were 32,000 and in 2017 were 31,000.)
4. Price-earnings ratio.
5. Payout ratio.
6. Debt to assets ratio.

2. Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Landwehr Corporation. (3 marks; 5 minutes)

Answer 1